One of the most common questions homebuyers ask is whether they can use gift funds for their down payment. The good news is, yes, you can! However, there are specific guidelines and documentation requirements to ensure compliance with mortgage regulations. At North Star Mortgage Network, we are here to help guide you through the process smoothly.

First and Foremost: Let Us Know About Any Gift Funds

If you are planning to use gift funds for your down payment, please inform us right away. “Gift funds” refer to any money that belongs to a person who is not applying for the loan. For instance, if a married couple has separate bank accounts and only one spouse is on the loan, any money used from the non-applying spouse’s account will be considered gift funds.

Additionally, money that has been in your bank account for more than 90 days is considered “seasoned” and is no longer classified as gift funds.

Rules for Acceptable Gift Funds

To ensure compliance with mortgage regulations, here are the key rules to follow:

• Gift funds cannot be in cash – The funds must be traceable, so they must come from a verifiable source like a bank transfer or check.
• Gift funds cannot have expected repayments – While the giver can choose to be reimbursed later, there can be no formal or implied expectation of repayment.
• Some loan types require donor asset statements – Depending on your loan program, the donor may need to provide statements proving the source of the gift funds, as per federal regulations like the Patriot Act.
• The IRS is not involved in the mortgage process – While tax implications for large gifts exist, the mortgage lender only requires the necessary documentation to originate and service your loan.

Gift Funds Documentation Requirements

Proper documentation is essential to prevent delays in your loan process. Here’s what you and your donor need to do:

Step 1: Sign a Gift Funds Letter

We will provide you with a template letter that must be completed, signed, and dated by both you and the donor. The letter must include:

• The gift funds amount
• The address of the property being purchased
• The relationship between the donor and recipient
• A clear statement that repayment is not expected

Step 2: Provide a Paper Trail

Both you and the donor must document the transfer of gift funds properly:

• The donor should transfer funds via check or wire transfer (cash is not allowed)
• If the donor is liquidating assets like stocks or CDs, proper documentation of the transaction is required
• Documentation may include asset statements, bank statements, or any lender-required paperwork

Step 3: Document Receipt of Gift Funds

Once you receive the gift funds, you need to show proof of deposit:

• Provide a bank statement showing the deposited gift funds as available
• Obtain a receipt from the bank when making the deposit
• Ensure the deposit matches the gift funds amount exactly (avoid depositing additional funds in the same transaction)
• If receiving multiple gift funds deposits, deposit each separately to maintain a clear paper trail

Final Thoughts

Using gift funds for your down payment is a great way to make homeownership more accessible. However, to prevent any financing delays, it’s crucial to follow proper procedures and provide the necessary documentation.

At North Star Mortgage Network, we’re committed to helping you navigate the mortgage process seamlessly. If you plan on using gift funds, reach out to us so we can assist you with the paperwork and ensure everything is in order for your loan approval.

Contact North Star Mortgage Network today to get expert advice on gift funds documentation and your home financing options!